Retailers outraged by big changes to power market
A company that sells power to Albertans warns that major changes coming to the electricity market will hike costs for consumers while squeezing retailers.
The NDP government said Wednesday it will implement a widely anticipated overhaul of Alberta’s power market that moves away from the deregulated system designed under the Ralph Klein government.
“The premier is playing with numbers that are confusing to consumers, and consumers are going to pay more,” said Nick Clark, managing partner of the Calgary-based power retailer UTILITYnet.
“This is the absolute worst government policy that we’ve seen in 40 years.”
Officials with the government and the independent agency that oversees Alberta’s grid say prices will not increase, and may actually be lower under the new system expected to be in place by 2021.
Yet, there is concern the government has created more uncertainty about the future of Alberta’s power system with a series of sweeping changes, including new renewable power, coal plant shutdowns, a carbon tax and now an overhaul of the entire system.
“We’re talking about a lot of change, not a lot of details behind the changes right now and years to work out the details,” said Kelly Gunsch, chief operating officer of Calgary retailer Sponsor Energy.
“Companies are hesitant to put money into markets when the rules are unclear, and right now we have unclear rules on a lot of fronts in the electricity market.”
Under Alberta’s existing power market, called an energy-only system, generators are paid only for the power they sell and must recover all of their costs, including investments in new plants, through fluctuating electricity prices.
With prices near 20-year lows, the Alberta Electric System Operator says generators can’t attract enough investment under the current model to build power plants needed to replace coal-fired facilities being phased out by 2030, while meeting growing consumer demand.
After interviewing developers, lenders and investors, the system operator concluded that investing in new plants is not attractive under the energy-only system because there is too much uncertainty about future revenues.
Instead, the province will adopt what’s called a capacity market, in which generators will be paid for their capacity to produce power, even though they may not actually sell it.
They will bid to provide generation capacity to the system through a competitive auction.
Generators will use these revenues to recover most of their plant construction costs, while they continue to sell power into the grid.
According to Alberta’s Energy Department, wholesale power prices shouldn’t change under this model, arguing generators will simply have two levers to recover costs and secure a profit, instead of one.
AESO chief executive David Erickson said prices must rise from current levels regardless of what model the province adopts, arguing they are unsustainably low.
“As they go up, we believe they would go up no more than they would under the energy-only market and likely less,” Erickson said.
Clark, of UTILITYnet, rejects the idea. He said generators will have to make massive new investments building plants to replace coalfired facilities while meeting government requirements for more renewable power.
One way or the other, he said consumers will pay more.
“They’re manipulating the price that the consumer has to pay and they’re hiding it in smoke and mirrors,” Clark said.
Another government change announced earlier this week will cap electricity prices for customers on the province’s default rate.
There are concerns this change could make retailers selling power on the unregulated market less attractive.
“Over time, unless the government changes its tune or the population changes the government, competitive retailers will be squeezed out of the market,” Clark said.